MONITOR AND REVIEW BUDGET
Assessment Submission details:
Please include following details on the top of your assessment:
Your Name
Your Student Id
Your Trainer’s name
Assessment Due Date
Actual Submission Date
Please Note: Any changes in the assessment due date must be approved by your trainer.
This assessment must be in Microsoft word format. Following settings should be made for this assignment to keep consistency among all the assessments:
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Body text |
Page setup |
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Do not forget to attach the Cover Sheet at the front of the assessment.
Make sure you have signed the Cover sheet to declare this is your own work.
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In ‘subject’ mention your ‘student Id – Your name’.
Achieving Competence:
To be deemed competent in this assessment you must:
Correctly address all of the assessment requirements as described in this task
Correctly address all of the submission instructions
Successfully complete the Assessment Questions
Submit assessment on or before the due date with an assessment cover sheet
Performance objective:
In this task, you are required to monitor the implementation of a budget and report on the variances, trends and performance of the established budget for a fictional business and provide recommendations for ongoing financial viability.
Assessment description:
You will need to review the provided current case study information and compare it to the budget you established in Assessment Task 1. After evaluating these you will need to report on the following:
significant issues
variances from budget
comparative performances
recommendations for ongoing financial viability
evaluation of financial management processes.
Assessment Questions:
Read the case study.
Develop a variance report based on the format and template provided by Houzit.
Complete a cash flow analysis on the average length of time it takes Houzit to collect funds from its debtors to determine the trend based on the financial reports in Assessment Task 1.
Examine the sales budget, profit budget, cash flowbudget and debtor ageing summary to identify the following:
Issues:
Identify, describe and prioritise significant issues that are evidenced in the provided case study information and describe reasons or causes of these issues. Include in this issue of financial probity that you have identified or considered when monitoring these budgets.
Variances:
Complete an actual-to-budget variance report, using the template provided in the case study.
Identify variances by comparing actual results with the established budget and provide reasons why these variances may have occurred.
Performance:
Compare financial performance of the organisation (according to financial information provided) to industry benchmarks for this organisation in line with the retail trade sector.
Respond to the performance questions provided by the CEO, as provided by the board of Houzit,
Determine a trend of the average debtor days and the impact to the cash flow of Houzit.
Recommendations:
Outline your recommendations for ongoing financial viability for the organisation, based on your assessment of the issues, reasons for variances and organisational performance you have identified (Steps 1–3).
Include in this section your plans for a revised budget, effectively managing contingencies and issues that have been identified in feedback and monitoring of the budgets.
Evaluation:
Provide a summary review of the financial management processes in place for the organisation, in light of your assessment of the issues, reasons for variances and organisational performance you have identified. Include in this section any recommendations you have for modifying management processes.
Specifications:
You must provide:
a complete actual-to-budget variance report
a completed report detailing the issues, variances, performance, recommendations and evaluations identified from the financial information for Houzit Pty Ltd.
Your assessor will be looking for:
Evidence that you reviewed the provided case study information to develop an evaluative report concerning the progress of the budget.
Case study
Soon after the end of the first quarter, Jim Schneider the CEO of Houzit, asked you to follow up with Celina Patel, Houzit’s accountant, to see how the actual results compared with the budget you had prepared three months ago. You explained that you had a meeting with Celina that afternoon to get the results and that you would report back as soon as you had done some analysis.
The key questions that the board was most interested to have answered from the budgets and the variance reports were:
‘To what extent do the reports support the view of the board that Houzit is financially viable?’
‘Will we be able to maintain our gross profit margins in the predicted downturn?’
Jim and you both agreed that it had been a tough quarter with the economy still in recession and the impact this was having on the retail sector. Banks are raising interest rates in line with the increased upward international pressure and Houzit has a significant part of their loan funds on a variable interest rate which changes directly with market conditions. Jim was pleased that the sales seem to be holding up reasonably well as first quarter results are generally impacted by factors relating to public and school holidays but he was concerned about the discounts that had to be given to generate these sales.
‘That’s going to hurt us at some point’Jim said. ‘Just a pity we could not get into some national magazines this quarter to promote the store offers. I’m sure that would have helped us exceed the budgets you set. I guess we will just have to spend that advertising money in the next quarter’ Jim said.‘I still think we are running our wages and salaries a bit high. The industry benchmark for wages and salaries is close to 11% of sales’
Jim went on to explain,‘One of our contingency plans in a slowing economy is to reduce our exposure to debt by applying our profits to the repayment of the long term debt. This will help reduce the interest burden on the business and take some pressure off the diminishing profits.It would also be of interest to determine the impact that our debtors has on the cash flow of the business from 2010/11.’
You are a beneficiary of the company’s profit bonus scheme that is based on the profitability of the company’s financial reports which you are required to prepare. You also prepare the departmental reports that form the basis of the performance review of the managers. You are the manager of the finance/administration and prepare this department’s report as well.
You met that afternoon with Celina and she provided you with the following report on the actual results for the quarter ended 30 September 2011.
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Houzit Pty Ltd |
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Actual Results |
Qtr 1 |
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Revenue |
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Sales |
3,371,200 |
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– Cost Of Goods Sold |
1,955,296 |
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Gross Profit |
1,415,904 |
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Gross Profit % |
42% |
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Expenses |
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– Accounting Fees |
2,500 |
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– Interest Expense |
28,150 |
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– Bank Charges |
380 |
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– Depreciation |
42,500 |
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– Insurance |
3,348 |
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– Store Supplies |
790 |
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– Advertising |
150,000 |
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– Cleaning |
3,325 |
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– Repairs & Maintenance |
16,150 |
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– Rent |
660,127 |
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– Telephone |
3,100 |
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– Electricity Expense |
5,245 |
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– Luxury Car Tax |
12,000 |
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– Fringe Benefits Tax |
7,000 |
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– Superannuation |
37,404 |
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– Wages & Salaries |
410,500 |
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– Payroll Tax |
19,741 |
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– Workers’ Compensation |
8,312 |
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Total Expenses |
1,410,572 |
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Net Profit (before tax) |
5,333 |
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Income Tax |
1,600 |
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Net Profit |
3,733 |
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GST cashflow – Actual
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Aged debtors – Actual
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Budgetvariance report template
According to the organisational policy and procedures, the following format is to be used when preparing a budget variance report.
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Houzit Pty Ltd |
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Variance to Budget |
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xxx Quarter ended mmm-yyyy |
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Actual Results |
Budget-Qx |
Actual-Qx |
$ |
% Variance |
F or U |
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Sales |
x,xxx |
x,xxx |
x,xxx |
x% |
F or U |
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– Cost Of Goods Sold |
x,xxx |
x,xxx |
x,xxx |
x% |
F or U |
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Gross Profit |
Calculation |
Calculation |
Calculation |
x% |
F or U |
|
Gross Profit % |
% |
% |
% |
x% |
F or U |
|
Expenses |
|||||
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– Accounting Fees |
x,xxx |
x,xxx |
x,xxx |
x% |
F or U |
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– Interest Expense |
x,xxx |
x,xxx |
x,xxx |
x% |
F or U |
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– Bank Charges |
x,xxx |
x,xxx |
x,xxx |
x% |
F or U |
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– Depreciation |
x,xxx |
x,xxx |
x,xxx |
x% |
F or U |
|
– Insurance |
x,xxx |
x,xxx |
x,xxx |
x% |
F or U |
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– Store Supplies |
x,xxx |
x,xxx |
x,xxx |
x% |
F or U |
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– Advertising |
x,xxx |
x,xxx |
x,xxx |
x% |
F or U |
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– Cleaning |
x,xxx |
x,xxx |
x,xxx |
x% |
F or U |
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– Repairs & Maintenance |
x,xxx |
x,xxx |
x,xxx |
x% |
F or U |
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– Rent |
x,xxx |
x,xxx |
x,xxx |
x% |
F or U |
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– Telephone |
x,xxx |
x,xxx |
x,xxx |
x% |
F or U |
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– Electricity Expense |
x,xxx |
x,xxx |
x,xxx |
x% |
F or U |
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– Luxury Car Tax |
x,xxx |
x,xxx |
x,xxx |
x% |
F or U |
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– Fringe Benefits Tax |
x,xxx |
x,xxx |
x,xxx |
x% |
F or U |
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– Superannuation |
x,xxx |
x,xxx |
x,xxx |
x% |
F or U |
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– Wages & Salaries |
x,xxx |
x,xxx |
x,xxx |
x% |
F or U |
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– Payroll Tax |
x,xxx |
x,xxx |
x,xxx |
x% |
F or U |
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– Workers’ Compensation |
x,xxx |
x,xxx |
x,xxx |
x% |
F or U |
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Total Expenses |
Calculation |
Calculation |
x,xxx |
x% |
F or U |
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Net Profit (Before Tax) |
Calculation |
Calculation |
x,xxx |
x% |
F or U |
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Income Tax |
Calculation |
Calculation |
x,xxx |
x% |
F or U |
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Net Profit |
Calculation |
Calculation |
x,xxx |
x% |
F or U |
Note: F = Favourable, U = Unfavourable
Debtor ageing ratio template
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2009/10 |
2010/11 |
2011/12 |
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Trade Debtors |
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Sales |
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Debtor Days |
Anticipate that the trade debtors for the 2011/12 financial period maintain the same growth as that which took place between 2009/10 to 2010/11.